Business Rates – Discussion Document for Government Policy to cancel certain backdated rates bills

NB:Could any comments relating to this discussion document please be directed to janet.alexander@irrv.org.uk

so that it can form part of the IRRV’s response to the proposed new scheme.

Business Rates – Discussion Document for Government Policy to cancel certain backdated rates bills

1.                  Further to a meeting with business rates representatives of local authorities this document sets out in broad terms the current policy proposal so it can be shared with wider local authority rates officials in order to allow for comment and questions. This will allow the Government to take into account any issues raised by local authorities as we finalise the proposals for implementing the policy.

Introduction

2.                  The Government proposal is that certain backdated rates liabilities relating to the ratings list compiled on 1st April 2005 should be deemed to be zero, in other words cancelled in their entirety.

3.                  The context of the relief being proposed is that the rateable values of some businesses in ports were re-assessed over a period between 2006 and 2008, due to information that the current application of existing case law was not being applied to some hereditaments.  This led to some businesses becoming liable for rates for the first time and receiving demand notices for large amounts of backdated rates liability (back to the date of the compilation of the list on 1st April 2005), which fell to be paid immediately, as well as needing to meet ongoing rates liability.  As this coincided with the recession, many businesses found it difficult to meet those demands. The Government of the time therefore created a scheme in secondary legislation in March 2009 to enable certain ratepayers, who had received significant and unexpected backdated rates liability, to pay that backdated rates liability in instalments over a period of eight years.   That scheme was not limited to businesses located in ports and other businesses that had backdated rates liability and met the criteria were able to benefit from the scheme. 

4.                  On entering office, the present Government acted to freeze payments under the instalment scheme until the end of the current financial year (March 2011) and committed to see what further action could be taken to assist businesses. Following further consideration, the Government now also wishes to cancel backdated rates liabilities for businesses which meet certain criteria.  Those businesses which will benefit are not to be limited to those in ports but the qualifying criteria will be more tightly drawn than those which relate to the instalment scheme in that businesses will not only need to have incurred significant and unexpected backdated rates liability but will also need to have been newly "split" off from an existing property on the rating list. 

5.                  The reason for this shift of approach is that the Government considers that a cancellation should only apply where a new property formed part of an existing hereditament, and therefore the ratepayer, may genuinely have believed that another body was liable for rates on the property, and they were until that point paying their rates through other means (such as through rents). 

Identification of properties and ratepayers liable for a cancellation

6.                  The criteria are likely to be based upon the schedule of payment policy, (http://www.opsi.gov.uk/si/si2009/pdf/uksi_20090204_en.pdf), although as indicated above the cancellation will only apply where a property is split out of an existing property. The other property criteria will apply being:

a.      The backdated liability arises from 33 months or more having elapsed between the effective date of the list alteration and the ratings list update date;

b.      The backdated liability arises as a result of an update to the 2005 compiled list only;

c.      The backdated liability arises from an update to the rating list made on or before 31^st March 2010;

d.      The backdated liability arises as a consequence of new properties being added to the 2005 complied list;

e.      The backdated liability arises as a result of action by the Valuation Office Agency (properties that are newly identified by notification from the billing authority to, or discovery by, the Valuation Office Agency) not as the result of a proposal.

7.                  However, not all ratepayers occupying these properties will be eligible as it is intended that the existing criteria applying to the occupier will also apply in that:

a.      The occupier was not previously liable for rates on a property "preceding" the new property assessment (i.e. not occupying a part of a property that has been split into two or more properties) and

b.      An occupier has occupied one or more eligible properties between the effective date and the ratings list update date for a period totalling more than 33 months

Extent of backdated liability

8.                  The extent of backdated liability for each property is limited, in accordance with the original schedule of payment regulations (SI 2009 No.204), to the period up to the date of the initial alteration date (when a newly listed property was added to the ratings list).

9.                  A subsequent change to the existing newly assessed property or a complete deletion with a subsequent further new property, replacing the original newly assessed property, being added to the ratings list may mean that the existing or subsequent further new property is then not entitled to an agreement under the "schedule of payments" even if there is a further split (if it does not meet all the criteria set out in SI 2009/No.204 - each new property needs to be assessed on its own merits).

10.             This is because the existing newly assessed property has been deleted and the subsequent further new property would not meet the criteria if added after the 1 April 2010 so is out of time, or if the liable ratepayer of the existing newly assessed property is the liable ratepayer of the subsequent new property (even if it is a further split) as they would not meet the unexpected criteria (schedule 1(3)(a) to (d) of SI 2009/204.

11.             However, this does not make the existing schedule for the original newly listed property invalid in accordance with part 3 of SI 2009/204. The backdated liability within the existing "schedule of payments" agreement will be transferred to the new property up to the initial alteration date and a business will still be able to have a schedule of payments and waiver for the extent of backdated liability arsing between the alteration date and the effective date that met the criteria set out in SI 2009 /No.204.

12.             To be clear properties that meet the schedule of payment criteria but not the waiver will still be able to pay their backdated liability over  8 years

13.             The rationale for not extending the backdated liability is that once on the ratings list you have an ongoing rates liability and a subsequent change affects the amount of ongoing rates.

14.             Of course, any subsequent changes that reduce the rates liability may then be backdated. If as a result of an incorrect assessment a ratepayer has overpaid their ongoing rates, this can be credited against the eventual assessment, or they may be entitled to a refund.

Implementation of the Policy

15.             It is currently envisaged that existing procedures will apply for the refunding of any changes in liability due to the amendment to Primary Legislation to create a new relief.

16.             We currently see the same procedures that apply for the retrospective application of mandatory Charity relief to apply. In that once the legislation is in place liabilities that were previously charged would need to be re billed and where overpayments had been made then the ratepayer would be entitled to a refund or credit against future bills.

17.             As the amendment to the bill is due to the application of a relief rather than an alteration to the ratings list we do not envisage that interest will be added to any refunds.

18.             Also the relief will be applied after any other relief (Transitional relief, charity relief, empty property relief) has been applied to a property.

19.             Where local authorities know that a ratepayer is entitled to a relief we would expect that the local authority to apply the relief automatically – but also accept any application from a ratepayer who may qualify.

20.             We do not envisage a formal application procedure – but information will be added to Demand Notices once the legislation is in place to inform ratepayers of the relief.

Case Study

21.             The below case study sets out how the policy will work. We are aware that there may be many different – more complicated  cases studies examples – we ware happy to consider any more complicated examples.

Case 1

A hereditament "A", in the occupation of ratepayer Ai, is shown on a rating list on 1 April 2005.  Subsequently, on 1 April 2008, it comes to the attention of the Valuation Officer that part of "hereditament A" is (and always has been), separately occupied.  Accordingly, "hereditament A" is "split" into two hereditaments – A* and B* - respectively in the occupation of Ai and Bi.  The alteration date is 1 April 2008, but the effective day is backdated to 1 April 2005.

Ratepayer Ai is in broadly the same situation as before, ie (s)he has a liability for rates from 1 April 2005 – albeit in respect of a smaller hereditament (with probably a lower rateable value).

Ratepayer Bi, however, who has not previously been liable for rates now finds that (s)he is not only liable for rates in respect of "hereditament B", but has incurred a backdated bill – (from 1 April 2005, the "effective day" to 1 April 2008, when the change was made to the list).

In this situation, we want to provide that ratepayer Bi (but only ratepayer Bi) has the rates liability for the period 1 April 2005 – 1 April 2008 waived.  However, ratepayer Bi’s "prospective" liability (ie for the period post-1 April 2008) should not be affected.